Because the shredded scrap increase ($28/lt) came in at slightly lower than the projected range of $30-$50/lt, it is unclear whether US merchant bar mills will significantly raise transaction prices, if at all.
Reaction to the last price increase was tepid, with most merchant bar buyers making purchases on an as-needed basis. Although the $1.25 cwt. ($28/mt or $25/nt) price hike announced in mid-August was accepted with little resistance, there are a few situations brewing which have led many to believe that domestic mills might absorb some-and perhaps all-of the current scrap increase. First, large-scale service centers have been slashing prices for merchant bar lately, frustrating mills and smaller service centers alike. Second, several import shipments are expected to arrive soon, and mills will likely want to keep the price margin between foreign and domestic merchant bar as narrow as possible. The new price announcement is expected to be released in the next week or so, but until then, official asking prices remain in the range of $38.30-$43.50 cwt. ($845-$960/mt or $766-$870/nt) ex-mill depending on size, shape and thickness.
However, if merchant bar mills decide to go ahead and push for an increase-as many other long product mills are expected to do-they will at least have the slowly improving demand for merchant bar on their side. For example, the manufacturing sector is growing faster than many economist predicted. The Institute for Supply Management's (ISM) factory index for August rose to 56.3 percent, compared to 55.5 percent in July. Most analysts expected a level closer to 52.9 percent (a reading above 50 percent indicates an expanding sector). ISM Chair Norbert J. Ore was optimistic about the 13th consecutive month of growth, stating that "In terms of month-over-month improvement, the Production and Employment Indexes experienced the greatest gains, while new orders continued to grow but at a slightly slower rate."
As for the other bright spot in merchant bar end-use, agricultural equipment is forecasted to improve throughout the rest of this year into the next. US-based equipment manufacturers such as Deere & Co. and AGCO Corp. have experienced strong demand for their products in emerging economies such as China, India and Brazil, where a mass transition from rudimentary farming tools to advanced equipment is currently taking place. Additionally, recent reports from financial experts have nearly unanimously recommended agricultural equipment manufacturers as strong investments.
While US merchant bar mills are trying to hold onto some semblance of stability, import prices have ticked up in the last month due to rising scrap prices overseas. The slight rise, by about $0.50 cwt. ($11/mt or $10/nt), has brought Turkish merchant bar prices into the range of $38.50-$39.50 cwt. ($849-$871/mt or $770-$790/nt) FOB load truck at US Gulf ports for small sections and some structural channels and angles according to ASTM A36/A6. Although most imports to the US are for specialty sizes and shapes, several competitive products are expected to arrive soon, as mentioned above.
Therefore, imports of merchant bar to US, which increased in August from July levels, will likely increase again in September. According to license data from the US Import Monitoring and Analysis System (SIMA), the US imported 8,061 mt of merchant bar in August, compared to 6,960 mt in July (preliminary census data). While Mexico and Turkey, the number two and number three sources of imported merchant bar in August (with tonnage levels of 3,409 mt and 598 mt respectively) posted monthly gains, Canada, traditionally the number one source, exported less merchant bar to the US in August than the country did in July (3,825 mt compared to 4,110 mt the month prior).
